1. GENERAL ECONOMIC SITUATION - 2002
Colombia began 2002 with a general uncertainty. This was caused by the breakdown of the peace process which triggered a resurgence of armed conflict and terrorist attacks. Because of this uncertainty, GDP fell in the first quarter of the year. The presidential election was another element of uncertainty, but this was mitigated with the election of the President during the first round. An election year has traditionally been characterized by economic sluggishness and limited investment, but higher paper consumption.
The Colombian economy is becoming increasingly influenced by international events. The slow economic recovery of the United States, the crisis of Venezuela and other Latin American countries and the uncertainty associated with the change of government in Ecuador and Brazil all negatively affected Colombia. This negativity takes the form of falling exports and more costly access to international capital markets.
Despite these factors, the Colombian economy grew by about 2 percent in real terms, which although higher than the Latin American average, is still far below the level needed for the country to pull out of its social and economic problems. The manufacturing industry also posted positive growth of about 3 percent.
Economic policies aimed at maintaining macroeconomic stability are beginning to bear dividends. Inflation remained at single-digit figures, interest rates fell significantly and the effective exchange rate rallied, with devaluation of 25 percent much higher than inflation at 7 percent.
Whereas in previous years the economy was driven by exports, these fell by some 4 percent in 2002. Most affected were sales to Venezuela, plunging some 30 percent in the period from January to October. Imports also fell during the first nine months of 2002, by slightly under 4 percent.
On the fiscal front, slow economic growth precluded a reduced public deficit and the year-end fiscal disequilibrium was estimated at -4 percent of GDP, up slightly from last year. This incurred a tighter adjustment plan and a hike in taxation of at least 10 percent.
Unemployment in the main cities remained at 16 percent, one of the highest levels in the region. Economic performance in the two previous years had helped curb the upward trend of this indicator. Underemployment continues at more than 30 percent, reflecting the country's difficult social situation and indicating an urgent need for faster sustainable growth.
2. PERFORMANCE OF THE PAPER AND WOOD INDUSTRY - 2002
a. Consumption, production and trade
This analysis reflects the first nine months of the year. Total production of pulp for paper in 2002 was up 2.8 percent from last year. Wood pulp was down 1.2 percent whereas pulp from sugar cane waste (bagasse) was up 8.4 percent.
Despite lower recycling of waste printing and writing paper, domestic recycling of wastepaper increased 5 percent due to greater recycling of packaging materials.
Domestic production of paper and paperboard increased 9 percent, but there were wide differences in individual performance. With regard to printing and writing paper (up 7 %), the modest growth of uncoated paper of 4 percent was offset by a much stronger increase in coated paper of 25 percent, reflecting the coming on stream of a new paper coating plant in the final quarter of 2001. There was also higher production of tissue paper (16 %) because of the start-up of a new plant which added one-third to installed capacity. Linerboard and corrugated medium were up 9 percent, wrapping paper up 9 percent and sack paper up 15 percent. Boxboard on the other hand, was down 1.5 percent and specialty papers fell by 7 percent.
Apparent consumption of paper and paperboard in the first three quarters dropped by about 14 percent. Imports and production for local consumption both increased. Exports on the other hand fell 5 percent, mainly because of lower demand in Venezuela and the reactivation of one of the plants there.
Consumption of corrugated paper is essentially determined by the level of production of bananas for export, which was up from last year. Consumption of sack paper indicates signs of recovery in the construction sector after several years of recession.
By September, exports of printing and writing paper had fallen by 30 percent, this being an export item for which Venezuela is a major market. Exports of cardboard fell by 8 percent during the same period. On the other hand, exports of tissue papers increased 34 percent and packing and wrapping materials by about 40 percent.
Imports of paper and paperboard were up 18 percent in the first nine months of 2002, with the highest increase being that of boxboard (up 47%), mainly because of excessively low prices. Imports of sack paper were also up - in fact double - and imports of printing and writing paper were up 20 percent. The greatest fall was that of wrapping and tissue papers, with imports falling from 8 900 tonnes in 2001 to 3 700 in 2002.
b. Financial performance
Although the greatest preoccupations for the pulp, paper and paperboard industry are low profitability, weak demand and the exchange rate, almost half the companies increased their profitability in `peso' terms.
Although not all companies have yet issued their financial statements, a sectoral survey suggests that corporate profitability is mostly on par with or higher than last year, although perhaps lower in `dollar' terms because of devaluation.
c. Outlook for the future
This will not be an easy year for the Colombian economy. The increase in taxation could choke the revival of consumption noted towards the end of 2001. The difficult situation in Venezuela, a key trading partner, could also have a negative impact on economic activity.
The performance of the US economy is also important for Colombia. The passing of the Andean Trade Preference Act (ATPA) could significantly boost sectors with a high economic multiplier, such as textiles and clothing and to a lesser extent hides and manufactures.
Also important is the progress being made towards building macro-economic stability as the foundation for greater sustainable growth in the future. In this connection, the financial and construction sectors are expected to continue along the path of recovery and expansion.
In general terms, moderate economic growth is expected for 2003, slightly higher than in 2002. No major upsets are expected in the key macro-economic variables, with interest rates likely to remain at their present levels, inflation to continue in the single digits and the exchange market to remain calm.
The challenge for the immediate future is to consolidate economic recovery and have it embrace the whole spectrum of economic activity. The tax, pension and labour reforms recently adopted by Congress should produce dividends in the short- and medium-term in the form of greater fiscal stability and generation of employment.
The paper industry holds expectations of modest growth, mainly because of the weakness of markets and because of the role of exports in determining production levels.
With regard to packaging materials, the new preferences applied by the United States under the ATPA will translate into higher demand. The increase in installed capacity for tissue paper is also expected to raise exports. There will also be greater diversification of supply in this subsector. However, the insufficient availability of wastepaper is a factor restricting growth in these areas.
3. ISSUES OF PARTICULAR INTEREST
a. Illegal logging
The absence of a good system of statistical recording and effective control of illegal felling and removal of timber continue to be major problems for the Regional Corporations and the Ministry of the Environment. However, there has been a noticeable decrease in volume of illegal timber because of lower demand for construction wood, lower availability of high-value wood accessible through traditional logging methods, the penetration of plantation wood in certain market sectors, and a recent general decline in timber prices to the point of barely covering producer costs.
One important development is the fact that most of Colombia's forest-based industries are extracting virtually all their raw materials from forest plantations. In addition, certain traditional uses of wood from natural forests, especially dunnage for agricultural and industrial exports (especially bananas), are now met by plantation wood, at the demand of clients in various countries. The paper industry only uses wood from sustainably managed forest plantations, amounting to about 700 000 tonnes each year.
Also important is the fact that there has been a significant reduction in the destruction of natural forest for agriculture, and there have even been reports of greater woodland cover as landowners have abandoned their cropland or grazing land. The greatest pressure on natural forests now comes from the clearing of forest to make way for illicit crops.
b. Environmental aspects
The Ministry of the Environment has established the National Office for the Mitigation of Climate Change to coordinate activities and commitments relating to the Kyoto Protocol and to support the Office of International Negotiations of the Ministry of Foreign Affairs.
With regard to the forestry sector, the Ministry is helped in its work by a working group of representatives of public and private bodies and selected NGOs.
Progress has been made for the sale of carbon certificates in two cleaner technology projects: a wind energy project of the Public Enterprises of Medellín and a large-scale public transport project in Bogotá.
Forest-related activities have focused on measuring the CO2 sequestration capacity of plantation and natural forests in different ecosystems. Participants in these projects include the Federation of Coffee Growers, the National University and the Public Enterprises of Medellín.
There is a databank of forest projects open to financing through the sale of carbon certificates.
c. Progress in sustainable forest management and certification
The Ministry of the Environment has coordinated discussions on a `Unified Forestry Code' to standardize national regulations. The central premise is the need to distinguish between regulations applying to natural forests and those applying to forest plantations so that these can be managed more appropriately and developed further.
In this connection, the new government has identified the forestry sector as a key strategic element for the medium- and long-term development of the country and as a means of generating employment in marginal rural areas. With this in mind, it has canvassed governments and international bodies for help in financing reforestation plans and plans for the conservation of natural forests and the recovery of degraded areas, especially where illicit crops are grown.
With regard to forest certification, the Task Force for Voluntary Forest Certification has continued to meet and a number of courses and seminars have been held to promote certification as an effective tool of sustainable forest management. The format used continues to be that of the Forest Stewardship Council (FSC). Work began in 2002 to harmonize forest plantation regulations with Brazil and natural forest regulations with Bolivia. No forest-related company was awarded a certificate in 2002, but significant progress was made in having reforestation organizations adopt FSC Principles and Criteria as a forest management strategy. Some companies are currently in the process of obtaining forest certification.